The Great Debate

– James Saft is a Reuters columnist. The opinions expressed are his own –

Asia’s calamity is that Americans are imitating frugal Asians a lot faster than Asians can become free-spending Americans.

The old economic model — that Asia exports to the U.S., saves its earnings and lends the money back to Americans to buy more stuff — is broken and no one can say what will arise in its place.

Americans are not willingly becoming savers, cultural change is being forced on them by the credit crunch and their own busted balance sheets.

The hope for Asia, which has seen an absolutely stunning cliff dive in its economies, is that domestic demand can grow to replace U.S. consumption. This faces huge hurdles; a social safety net that is threadbare to non-existent and a population that just doesn’t understand the risks of living closer to your means but sees frugality and the storing up of wealth as a virtue.

Asia banking on consumption at home replacing that from the U.S. is a bit like Las Vegas trying to make up for plunging gambling revenue by charging more for prime rib dinners; it might help a bit but it’s not a serious business model. In the meantime, economies across the region are seeing really stunning falls in activity and exports.

– James Saft is a Reuters columnist. The opinions expressed are his own –

Another week, another set of protestations that U.S. banks will remain in private hands, apparently almost regardless of the consequences.

It is clear that nationalization violates a sacred value for U.S. policymakers, or perhaps they believe it to be a sacred value held by voters. As we know from behavioral economics, when people are confronted by a conflict between material advantage and their ideas of the sacred, they tend to opt surprisingly often for the sacred.

– James Saft is a Reuters columnist. The opinions expressed are his own. –

(Correcting name of academic to Peter Reuter on Feb 27)

Want to help fund the bank bailout, ease California’s budget crisis and shore up strained U.S. finances? Legalize drugs, tax the trade and save on interdiction, domestic enforcement and the prison and court system.

I’m only partly joking.

It won’t solve all of the U.S.’s problems and lord knows will cause some new ones, but the money is undeniably big enough to make a dent.

– James Saft is a Reuters columnist. The opinions expressed are his own –

The U.S. government should just get out of the way and allow the crash in U.S. housing; the market is too big, has too far to fall and Americans’ finances are too strained.

President Barack Obama’s measures, unveiled on Wednesday, are part of a $275 billion plan to try and stabilize the housing market and prevent foreclosures. It aims to encourage lenders and their agents to cut repayments for homeowners in difficulties to lower, more affordable levels as well as other steps.

– James Saft is a Reuters columnist. The opinions expressed are his own. –

U.S. plans for a public-private fund to buy up toxic assets are likely to amount to a fig leaf with which to hide subsidies to failing banks.

It is also, inevitably, an entirely new subsidy to outside investors, who by definition will only participate if they get better terms than now available in what we formerly thought of as the free market.

– James Saft is a Reuters columnist. The opinions expressed are his own –

Like it or not the United States will be forced to nationalize large swathes of its banking system by the time the leaves fall from the trees in Washington.

The tragedy is that we will have to wait that long and that the costs will mount.

– James Saft is a Reuters columnist. The opinions expressed are his own –

The argument about bank bonus payments is as sterile as it is backward looking; compensation at government insured institutions is going nowhere but down.

The real action will be at those places like hedge funds, private equity houses and boutiques, which will try and trade less insurance for more autonomy and which will capture more market share, take on more risk and offer more reward. The question is how will they be regulated, how will they fund themselves and how will the rest of us be protected from the systemic risk they could easily represent.

– James Saft is a Reuters columnist. The opinions expressed are his own –

Our brains are wired for bubbles, it would appear, and regulation and tight external controls are the only way to save ourselves from ourselves.

Bankers, traders and investors effectively became addicted to the pleasure that comes from making money, while at the same time increasingly losing touch with just how much risk they were taking.

– James Saft is a Reuters columnist. The opinions expressed are his own –

Why not just play by the existing rules and rescue the economy, rather than the banks and their foolish shareholders and counterparties?

The choice for the Obama administration comes down to this: pay a subsidy to weak banks and reward failure and self-dealing or shut them down and start over again.

– James Saft is a Reuters columnist. The opinions expressed are his own –

There has been a lot of talk in Davos about improving business ethics, and mercy knows there is certainly room for that. The past few years, like the end of most booms, have included plenty of fraud, self-dealing, and general all-purpose unethical behaviour.

I think it’s fantastic that business should seek to raise ethical standards. It’s good business, and not before time. I do understand that a lot of what happened was a social phenomenon, and that a change in mores can only help.

But frankly, a new emphasis on ethics is a sideshow, and among some who propose it, a diversionary tactic.